Panama Facing the Pressures of Global Powers
The Tax Information Exchange Agreement (TIEA) and the Double Tax Treaty (DTT) are the two formulas currently applied to align the so-called tax havens with the imperial fiscal harmonisation, so vociferated by the Organisation for Economic Cooperation and Development (OECD).
The DTTs are interesting, in principle, to high-tax countries that, on the basis of their essentially universal fiscal system, assess their residents on their worldwide income. For example, if a French person invests in Japan the DTT between those countries prevents this French from paying taxes twice, both in France and Japan.
By contrast, the TIEAs are imposed by the powerful on the mini-states and dependent territories, especially if they are labelled as tax havens. Therefore, the interest to unilaterally exchange tax information based on TIEAs does not originate in countries of low taxation, but in those of the high-tax universal system.
Generally, when dealing with British dependent territories and other European possessions around the world, the Double Tax Treaties are not interesting to the colonial state. That is why the British Virgin Islands (BVI) has only one DTT, namely with the UK, but an increasing amount of TIEAs.
Consequently, the agreements being subscribed by BVI to rid itself from the “uncooperative tax haven” stigma are exclusively TIEAs, i.e. “one-way” agreements to satisfy the enormous tax appetite of the English government. In the face of BVI, the imposition of TIEAs is unfair, but we should not be surprised: British have experience in imposing “unequal treaties” (China, 1841, The Opium Wars). Not to mention the colonial powers France, Spain and their best apprentice, the USA.
There is no definition of tax haven generally accepted but, in our view, it is a legal system that, in fiscal matters, taxes its residents’ income mainly at the source and applies very low or no taxes at all to non residents. Generally, they are dependent territories or mini-sovereign states that, due to lack of raw materials and because of the limitation of their territory and population, have created attractive tax and confidentiality facilities allowing them to participate in the world economy by acting as intermediaries for cross-border juridical vehicles.
The Republic of Panama has always had a territorial tax system, one of the oldest tax systems known in history and still partially applied by most countries around the world. Thus, it would be logical for Panama to subscribe TIEA type treaties with the global powers for them “to leave us in peace”. However, before making such a hasty decision, let us make a better analyse of the matter.
Well Accepted Double Tax Treaties
Panama is no one’s colony and, if for almost one century it was seen a US American “quasi-protectorate”, the country has endlessly demonstrated to the world that it is a dignified and free nation. It is an offense if an “unequal treaty” such as the TIEA is imposed on the country; this would threaten its service economy and, what is totally unacceptable, it would bar Panama from the future development of its financial centre. Based on the TIEAs, neither undeclared patrimonies would flow towards Panama for fear of fiscal information exchange nor declared patrimonies for lack of Double Tax Treaties.
Panama’s financial centre would be in a different situation if the country had a network of treaties (DTTs) to prevent double taxation. These treaties have a tax information exchange clause and thus, are well accepted by the global powers. A good DTTs network would turn Panama into an international patrimonial management market; such treaties would give impulses to develop the techniques and knowledge of tax, estate & financial planning. In a relatively short time, Panama would become for the Western Hemisphere what Switzerland is for Europe and Singapore for Asia. This sophisticated scheme would attract foreign investment towards Panama on a massive scale with the consequence that new industries, trade activities and jobs would be created.
Panama urgently needs a national development strategy allowing the country to benefit from the natural advantages that characterise the isthmus. Panama’s history reflects at maximum the axiom that people’s destiny goes through their geography. A national debate about the future of Panama’s economy, currently selfishly questioned by the global powers without them caring for the damage they may cause, is urgently needed. Just as one cannot forbid the United States to produce steel and export weapons, or Germany to declare their automobile industry as “of national interest” avoiding so Brussels’ aims to lower toxic emissions, Panama cannot allow them either to destroy the country’s only advantages: the service and logistic economy.
Conclusion
The Panamanian government has to officially declare the service centre as a matter of national interest (80% of the economy) at the same time that it makes know the world that it is ready to apply the Retaliation Law against any country that discriminates the Canal Republic in any way. As a progressive nation, Panama has also to be willing to adjust its legal system to the demands of the times: the country has to make the necessary reforms allowing to successfully negotiate double tax treaties and to reject the denigrating tax information exchange treaties. Neither friends nor moral can determine Panama’s foreign policy but exclusively Panama’s national interests. Let us stand up for what is ours!